China Says It Must Add To Gold Reserves To Promote Yuan Globalization And As An FX Hedge

Back in September, when we provided the monthly observation on what has become a record year to date surge in Chinese imports of gold from Hong Kong, we reminded readers that "in December 2009, the China Youth Daily quoted State Council advisor Ji as saying that a team of experts from Beijing and Shanghai have set up a "task force" last year to consider growing China's gold reserves. "We suggested that China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper quoted him. Has China managed to accumulated 6,000 tons yet? We won't know for sure until the official disclosure which will come when China is ready and not a moment earlier, but at the current run-rate of accumulation which is just shy of 1,000 tons per year, it is certainly within the realm of possibilities that China is now the second largest holder of gold in the world, surpassing Germany's 3,395 tons and second only to the US."

Two days ago we showed that the relentless importing of gold in China continues, yet what has been missing is an update direct form the horse's mouth how China feels toward gold (because we certainly know how it feels toward US Treasury paper). Today, we finally got one straight from Beijing, and that during a very carefully supervised time when the 18th Communist Congress is still in session, and every word out of China has profoundly telegraphic implications.

From Bloomberg:

China needs to add to its gold reserves to ensure national economic and financial safety, promote yuan globalization and as a hedge against foreign- reserve risks, Gao Wei, an official from the Department of International Economic Affairs of Ministry of Foreign Affairs, writes in a commentary in the China Securities Journal today.

While gold prices are currently near record highs, China can build its reserves by buying low and selling high amid the short-term volatility, Gao writes in newspaper

China’s gold reserve is “too small”, Gao says

And there it is: while many have speculated that China, which has not given an update of its official holdings in nearly 4 years, is quietly building up its gold reserve holdings behind the scenes, there was no reason to worry. The time to worry would be when China was starting to give indications it is prepared to tell the world what its true gold holdings are (by now certainly well over 1000 tonnes). And the above piece from Wei is just that: because in saying very little, the Chinese official with a key political post has just given the first hint that China is preparing to give its official gold far greater focus. And from there, the time until China releases an IMF update on its official reserve holdings will be measured in days if not hours. Because all the gold will have long been accumulated.

And once that happens it will be too late to buy any incremental gold. Or tungsten.

Here's one of the trades of the next decade, along with the when (not if) to short U.S. tnotes (and other sovereign debt AND credit instuments), as well:

Is China's incoming leadership hell bent on forcing a dramatic rise in domestic consumption, in order to attempt to offset what is going to be a continued decline in demand for exported goods, at the risk of creating even more quickly rising inflation, and at the risk of not being able to succeed, given the Chinese propensity to save (on a relative basis), which would lead to rising unemployment (a risk factor that's probably more unsettling to the Chinese Establishment than high inflation, given China's demographics)?

Or will China's incoming leadership double down on the export model that's driven their high rate of economic growth thus far, to the point of swallowing even higher inflation imported from abroad (assuming there's not a serious collapse tantamount to a depression in the global economy), even increasing government subsidization of private industry in order to make exports less expensive to foreign purchasers & maintain the highest rate of employment possible given unfolding circumstances, which would almost certainly essentially mean that China has also refused to truly float its currency?

“We must find new lands from which we can easily obtain raw materials and at the same time exploit the cheap slave labor that is available from the natives of the colonies. The colonies would also provide a dumping ground for the surplus goods produced in our factories.”

Perhaps you're getting warmer. The chinks will buy every possible ounce of gold at its current low price. When they acquire, oh say 35k tons, they can do whatever they want...hedge against anything, internal sovereign value, REPLACE PETRO DOLLARS with PETRO GOLD, their options are numerous.

All the while not to start US dollar devaluation panic thus using their USD FX to obtain their desired outcomes. Sun Tzu's Art of War nearly mimics strategy of the chinks.

TI Sunshine... Your last paragraph... China will continue on the horse that brought them to this point. If they deviate from their current path it will be only slightly and after a great deal of study. What a EUREKA moment it must have been when they were allowed full membership into the WTO... like the day Gates was given the keys to the kingdom by IBM.

China understands that patience is a virtue... and China has the patience to employ patience... :)

"Patience (or forbearing) is the state of endurance under difficult circumstances, which can mean persevering in the face of delay or provocation without acting on annoyance/anger in a negative way; or exhibiting forbearance when under strain, especially when faced with longer-term difficulties. Patience is the level of endurance one can take before negativity. It is also used to refer to the character trait of being steadfast."

We are getting very close to gold break out. I've been nervous that gold could take another tumble because we didn't break through $1800 in the recent move up. However, after the Obama victory, the story for gold has been very bullish. Now we get this quote out of China today - by far the biggest buyer out there. What could be more bullish?

Most of us have become technical traders, after watching gold and silver move up and down like a yo-yo. But I think we getting close to a major break out. And what I mean is a $50 dollar move, followed by a $70 move. Gold will likely jump over $100 in a couple of days. This should happen sometime before xmas. And gold will likely close over $1900 for 2012.

Why? Because the demand for gold is growing in my opinion. And the floor is being set by central banks throughout the world, who are buyers. Any day now we are going to be hearing about another country buying 100+ tons. And then another. Gold is the new reserve currency to own, and countries are figuring this out.

I used to think the only thing that could push down gold was a recovering economy. But I no longer think that is a possibility. Any day now the DOW is going to drop 500 points and then another 500 points the next day. With this drop the layoffs will begin, as corporations try to defend their share price. This will start a downward spiral in the economy. Thus, the economy is toast and not coming back for a long time.

So, there is no longer a threat to gold going down. Soon the market will figure this out, and that is when we get our $100 up move over two days. Then another $50 up move a few days later. It's coming. I can feel it. I've been early before, so I wouldn't be surprised if gold closes under $1800 at year end. But it won't take long in 2013. This bull market is NOT over.

This is the first post when I spoke about the price of gold when I did not say to be weary of a stock market crash - sending gold prices plunging. I think that threat is gone. It's time to load up on mining stocks and bullion. We are getting ready for the mania phase to kick in. I thought we would have to wait until 2014 or 2015, but now I think it could begin any day.

If notes do not say explicitly "worth x grains of gold/silver" then devaluing a currency on a "gold standard" is fairly easy. All it has to do it raise the notes per ounce peg.

A psuedo gold backed currency will placate many people, but won't stop the devaluing, and so won't stop huge deficits and warfare-welfare State. I'd recommend selling your gold right after the inital gold backing occurs, around 2020 or so. Then trade your savings for gold again in 4 or 5 years to get ready for the next 10% devaluation.

it means there's a hard floor, a really hard floor and those who think they're smarter than the rest and wish to test it better be damned well paying attention else they'll be left behind covering their underwater shorts without any notice....Naked COMEX shorts better take notice. They've just been put on the endangered species list. I wonder if they're smart enough to even know it yet.

Seems to me that every central bank in the world has suddenly awakened to the fact that they need gold and were foolish to lend/sell their gold reserves. In addition, all of SE Asian peoples are accumulating when possible. If more than half the world's population buys 1/10 oz of gold per year then the supply taken off the market is significant. Especially when central banks are attempting to replace their reserves.

China to JPM : Thank you very much for suppressing the price of gold and helping us get it cheaper than we otherwise could have. We know we promised banking in China for return but guess what.........readership changed bitch ...fooka yu.....your gold berong to us!

Bugs to All the Tea: Eh, what's up Doc? Dig the trip from the Essense of Man, and thanks for helping with the hole. I hope you get the General idea better than you have. The Broad? Well, she can't act ''alone'', not without ''heels'' aaah buv her, ah buv her head. Oh my no, don't stop ...thinking about The Day After Tomorrow and the other side of the Rainbow Flag next to Old Glory. Use yer head, they do it on Malls in public and people just walk on and buy when Black Friday Comes daah dah dum dumb. http://www.youtube.com/watch?v=UVQKiqCZ9No Put your ear a bit closer to the track and you will feel the vibe of the Peace Train coming to Jerusalem. The smoke and mirros have everyone ignoring why people of Fukushima are looking down the other side of Morning. Hey, wait a minute. Doc, Doc, wake up Doc, lets get back to the future. It's curtains for the ignorant slut for a reason. http://www.youtube.com/watch?v=Ul5HTPES-yU Just weight, you will not see, just a rider on the black hole. You will hear the sound of Krugman's Fifth Symphony, played inside ''One New World Devil's Tower'' tune, clear enough to hear Aaron's trumpet. ''Rock'', ah like ah hewn rolling stone Russo. Oh, ''Dimon's'' are forever, odd ''fellows'', risen for hoursemen from the Ground Zero Interest graven image. Final confirmation, that the Lady; drinking the 911 wine of wrath from the give me Silver Blue and Gold shelter Helter Skelter cup overflowing with puts, while naked and without Magic Underwear under her favorite Red vote 2 party number 666-ADD-Debt call me Wha Wha Whaa Blondieee I'm on the hook not in the Good Book dress, is a tramp stamped design for Agent Smith. http://www.youtube.com/watch?v=pr7QhIJVvxo

The Pope's Butler did it? LMAO. I bet the two witnesses in that case were not related to Daniel's prophetic call of destruction or any murdered person that left behind a record of events that lead up to the revelation of their death. http://www.youtube.com/watch?v=2ySu-kY3YWc&feature=fvwrel

Well, they certainly have a lot. In a complete jump from fiat to gold, the US would come out way ahead of China if the stated reserves exist. Believing the US actually has empty vaults down there is a bit of a stretch for me, probably because I know it's what I want, and I forever try to remind myself not to believe simply what I want to happen.

Yes, my point above. They are not going to poke a hole in the US Dollar any time soon if they are the second biggest counterparty to that debt. That is endgame and they can't do it until their domestic market for their goods is stronger, and the US military is looking a bit more underfunded. 20 years?

They have just upped the ante on the other RB's around the world including our deluded doughnutz here in OZ.

This is the legitimizing of Gold as a world currency base. This will have the Arse Puckerers at the IMF scratching their nuts about how to keep themselves relevant in a world where Sovereigns give em the finger. I hope

So China is turning other country"s debt, a huge pile of it U.S. into gold. Isn't that really what they are buying it with? So when the debt chain collapses and people go looking to collect on their paper, a lot of it will have turned into gold in vaults in China. Good luck getting that back in exchange for you IOU's. So how will that work out as to the value of gold in the rest of the world? Those buying gold as a personal hedge against the collapse of fiat currency will sort of be stuck with a commodity that their country will abhor due to it's being controlled in too large a part by another country. In a chain of real economic value, will gold bought with overextended debt, stashed in China be a viable or actually valuable currency in any other country>

They don't need gold because of virtual currencies, which also have physical forms, now provide the same benefits as a gold based currency as well as having additional flexibility. But gold is nice because you can hold it and trade it without having to depend on any dang computers.

China is making big centrally planned decisions that typically end in disaster for those they are supposed to represent.

China now will make its official entrance into the world currency game. The last ten years has seen China emerge as a world contender; witness the Peking Olympics blessed by GWB himself in dire WS meltdown.

With the NEW politburo now in place, China will rev up its monetary gear, and use the current USD crisis and surrogate Euro zone meltdown to impose itself as an alternative superstate with its own money backed up by its BRIC allies and a precious metal back up.

Can the one party crony politburo state manage this hubristic transition?

BIG QUESTION for the decades to come!

Lets for a moment give them the benefit of the doubt as the West is going south bigtime and the East is on an economic roll.

This gobal geo-strategy will be complete and official the DAY the prime commodity that makes the world go round, aka ME OIL, becomes pegged to Yuan and unpegged to USD. That day the multipolar world will have truly emerged and the hegemony of King $ and of Pax Americana military play will be over.

No more Saud and Chinese money to back up General Petraeus and Consorts hanky-panky in Iraq-Iran-Afghan sheeple bashing. All MIC hanky-panky from then on reserved on Miami sheeple bashing.

Look ahead and see whats written in the tea leaves of the tea party stalwarts who support MIC.

Neo cons and government shills, the Alamo will now be beseiged once again. You can practically hear those trumpets play. That's what US hubris has now achieved in the tatters of its own world "clash of civilization" play.

Meanwhile in Euro zone the banks impose the Club Med bashing of the south while the north wrings in hands knowing one day Nemesis is going to pay them also a visit. We are in tipping times.

The true initiative lies with the Oligarchs who own the world from Caymanista land. The new Conquistadors now ready to work with whoever champions the new Habsburg world empire; whether it be DC or London City or Pekin middle kingdom.

Guns for hire and extractive empires ready to pump commodities for the new Czar/Mongol Lord of world empire!

Whatever the monetary denomination, USD or Yuan, the MONEY line belongs to the Oligarchs, as they have the technology, the resources and the world networks in place. They are the new Medecis of this Renaissance age. Their banks, their multinationals will talk to whoever is political top dog; as he is just a debt slave of their oligarchy. Thats the price for buying rice to feed the people.

On this issue remember how this same Oligarchy breed captured the new money line of USA in 1913, when they struck a deal with the Rockafella-Morgans in Jeckyll Island and spawned the private run FED.

Nothing new to repeat what happend in London city in 1815, then in 1913 in DC/WS !

We had kings and Popes, in the last feudal age. Now we will have transnational Oligarchs and Statist Czars to share the cake. In this new global neo-feudal age, centrally planned to serve these two crony cabals.

Where are the new GWs and LAfayettes of first world? Now faced with the ruins of its "we the people" meme, from behind the tinsel curtain of imprisoned democracy and republic. Just look at how the debt mountain grows to ensure the nations' servitude all over the world.

Looking at the current relatively low gold price, one has to ask whether the US cronies actively support the Chinese efforts or not. The artificial price suppression managed by the comrades at JPM is exactly what China wants. Seems like Rothschilds have already grasp the fact America and dollar is virtually over shifting the focus on China and renminbi.

(edited for clarity) "... I had dinner about a year or two ago with the head of Gold at HSBC and one of the things that he described — and most of the world's gold goes through HSBC, at some stage — looking at the gold in his vault ... despite the fact that China is the biggest producer - he never sees bars, with Chinese stamps on them ...

The empty wearhouse is still considered the greatest holder of gold. I wish people could show more proof before assuming such vast quantities and then concurrently selling that position with a fiat paper product. Trust yes, but verify!

Coming out of the closet about their gold plans .... defuses speculation and rumors .... disarming the alarmists .... provides calm reassurance and cover .... while they continue to hoard like MADMEN ! This is damage control for hoarding they can no longer deny !

I wish the US would keep adding to it's stack and even encourage it's citizens to do the same ! We should use a little of all the fiat we've created to buy some gold insurance ? How about Obamy and Bernanky doing a commercial for the U.S. Mint ?

So the biggest coin counterfeiters and probably bar couterfeiters in the world may have 6000 tons. 6000 tons of what? No one could ever reliably believe anything the Chinese say no matter how much they import or produce

Gold is part of the Chinese DNA .... Gold trumps Communism ! The lovely Arafat amassed quite a private fortune from the Palestinians .... I imagine some of those Chicom leaders have substantial hoards .... despite socialist protocols !